R&D Tax Credit for Startups

January 6, 2016

On Friday, Dec. 18, 2015, the Federal R&D Tax Credit was revamped and made permanent after being extended numerous times since its inception in 1981. This is particularly important for startups performing R&D activities in Georgia. Ready to learn how it can save you money?

The Nitty Gritty:

1) CREDIT MADE PERMANENT: The R&D Tax Credit expired on Dec. 31, 2014. This new law retroactively applies to Jan. 1, 2015 with no expiration. This means that your company will finally be able to create accurate forecasts and budgets around the R&D Tax Credit.

2) ELIMINATES THE AMT REQUIREMENT: The new law includes an Alternative Minimum Tax (AMT) patch for tax years beginning after Dec. 31, 2015, which will allow companies and individuals paying AMT with less than $50 million in average sales over the prior three years to claim the credit. Currently, many companies and individuals are limited by AMT and are not able to fully utilize their R&D Tax Credit. You will pay less taxes!

3) STARTUPS CAN OFFSET FEDERAL PAYROLL TAX: In tax years beginning after Dec. 31, 2015, companies with less than $5 million in gross receipts and less than five years old will be able to use the credit to offset up to $250,000 in payroll taxes annually. This will allow startups to essentially get cash back for their R&D efforts on a federal level, and it will help spawn innovation across the country.

What is the R&D Tax Credit?

The R&D Tax Credit helps companies remain competitive in the marketplace by allowing a dollar-for-dollar reduction of federal and state income taxes owed for qualified expenditures incident to the development or improvement of a product, process, software, formula or invention. The Federal R&D Tax Credit can be used to offset federal income taxes and state payroll withholding. It’s worth looking into.